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Investment Horizon : 9 to 12 Months

03rd January, 2013

Introduction Demand Perk-Up Investment Rational Enhance Production Procurement & Distribution Increased input cost reduces profitability Labour Cost Other Cost Farm Profitability & Environmental Support Farm Input Exports Uncertain Monsoon Irrigation & MSP FCI Procurement Ratio Price Earning (P/E) Price to Book Value ( P/BV) Price/Cash EPS (P/CEPS) EV/EBIDTA Market Cap/Sales

Growth Drivers Population Growth Livestock Feeding Agri-Input to help growth Agri-Inputs to increase production Exporters to benefit from crop price Industry Premise (Inputs) : Seeds Pesticides Fertilizers Agri-Inputs Companies Breakdown Kaveri Seed Ltd. TATA Chemicals Ltd. United Phosphorous Ltd. Cash-Flow Statement Valuation Ratios Valuation Charts Tata Chemicals 16.05 1.76 11.39 9.43 1.08 United Phosp. 28.82 1.71 17.06 12.2 1.73 Kaveri Seed 13.91 3.3 11.84 10.88 2.14

Agriculture Sector contribute 1/5th of the GDP, 10% of Declining Agri Share In GDP countries Exports also provides raw-material to various industries in varied segments. Though monsoon being 10 16.8 15.8 uncertain since 2 decades, India has witnessed record 9 9.3 8 production in (food grain CAGR FY01 12 2.3%), improved 7 8.4 5.8 6.7 yields (0.71%) and has robust buffer stocks (82 mmt). And, this 6 5 has been possible due to various inputs used in Agri-Segment 4 like the high quality Hybrid Seeds, Pesticides Mix and various 3 2 0.1 1 Fertilisers.
Total GDP Agri & Allied Sector GDP Agri % of GDP

18 16 14.7 14.5 13.9 14 8.4 12 6.9 7 10 8 2.5 6 4 1 2 0 2010-11 2011-12

Demand to Perk Up :




Increased individual income All India Avg Annual Growth Rate Crops/Crop Group Yield of Principle Crop (%) has improved Standard of 1990-91 to 1999-2000 2000-01 to 2010-11 Living, that upshots a shift in 1.36 1.47 their food habits, with low per Rice 2.87 0.73 capita availability of the land Wheat 1.37 4.13 has increased the burden on Maize Coarse Cereals 2.03 4.64 existing farm to cultivate more. Total Cereals 2.38 1.69 The uneven rain has Gram 2.97 1.19 compelled the farmers to fetch Tur 2.03 -0.65 new choice that increased the Total Pulses 1.82 1.21 demand for Agri-Inputs. Also, Total Foodgrain 2.43 1.37 farmers has adopted a Groundnut -0.3 12.76 2.96 2.72 scientific approach and new R&M 4.67 4.17 techniques of production in Soyabean 1.76 5.18 order to meet the consumption Oil Seeds Sugarcane 0.91 0.03 demand. Cotton -0.54 9.15

Investment Rational
Enhance Production : High population growth, rapid urbanisation & dietary shifts has lead a immense pressure on food production. Rising Per Capita Income has led to increased consumption of livestock and foodgrain. Thus India has to produce more to eat and feed that drives demand for Agri-Input. Food Grains (mmt) Cotton Rice Wheat Maize Sunflower Cereals Pulses Oilseeds Total Food Grains 2012 35.2 104.3 93.9 21.6 0.5 240.2 17.2 30 257 CAGR (2000-12) 11.9 1.1 2 5.5 0.01 2 4.6 5.3 2.2

Procurement & Distribution : The inefficient procurement and distribution leads to high wastage (almost 40% of the agriculture), that leads to high inflation. While govt. FDI in Retail policy initiation to draw returns in long run (that would lead to Pvt. expenditure in infra segment that would ultimately benefit farmers), thus higher Agri-Inputs use leads to increase productivity in near term. Increased input cost reduces profitability : Despite A bumper cost, farmers in various parts of the economy earns realisation below remunerative levels. The insufficient market access for Agri-production and inefficient supply chain lead to low margins for the farmers. The following input cost increase has lead to reduced profits. Labour Cost : Labour cost in India has increased about 74% since 2008-12. In certain states like Maharastra, Odisha, Tamil Nadu, Andhra Pradesh and Karnataka it has increased to about 80-100%. All India daily avg. wage rate for Agricultural Labour Financial Year Wage Rs/day FY08 98 FY09 114 FY10 135 FY11 163 FY12 189

Other Cost : Fertiliser cost has increased about 40%, Diesel Price, Cattle & Fodder price hike, (of about 45-60%) in the same period.

Helped by MSPs (Minimum Support Price), Cost Components % Share profitability increased sharply between FY01-FY09 but after that it has been stagnant. We expect government to be aware of the cost pressure and to 6% 7% increase MSPs to 15-45%.

Human Labour Machine Labour Seeds Fertilisers Insecticide

Farm Profitability & Environmental Support : The Other 8% industry had a fine profits during FY01-FY09, 55% however it remained stagnant after than. Govt. is 15% aware about increase cost pressure on the segment, so its likely to compensate it by MSPs (by 15-40%). The MSPs for key Rabi crops (Gram, masur, mustard, safflower and barley) too were raised by 12 20%, which would be marketed in FY13 14E. Ahead of upcoming election its expected govt. to increase MSPs and reduce subsidy cuts. Farm Input Exports : Sever drought condition in US (this season) has impacted the main crops like corn and soyabean, thus global farm income is likely to be surged by increasing crop price. This would stimulate grower to increase the output thus profits. Being agriculture demand inelastic and weak rupee would benefit Indian Pesticides exporters the most. Uncertain Monsoon : Monsoons are quite

uncertain in our economy. Post monsoon have reduced the rainfall deficit to about 4% of the LPA (LPA (Long Period Average) : It is a average of rainfall for considerable long period & variation from it is counted in co-efficient of variation.); that in June was about 44%.Indias 84 important pool is filled by 74% of the capacity which is 89% of the last year and 105% for last 10 years average. Despite of uncertain monsoon since last 2 decades India has witness a record in Agri-Production (food grain CAGR FY01 12 2.3%), improved yields (0.71%) and has robust buffer stocks (82 mmt). As it has been more of resilient with the increased us of Fertilisers consumption, however it has affected the consumption of Pesticides. Irrigation & MSP : During FY01-09 phase, increased MSPs, input cost & higher production farm profits have soured (higher than a investment cost), that led to higher demand for farm-inputs. Rising land prices due to increase in urbanization has led to the extra income (incase of sale) which further led to higher crop input demand. FCI Procurement : FCIs procurement of foodgrains is for maintaining buffer stocks and ensuring national food security and distribution under PDS (Public Distribution Schemes targeted for poor strata of population) and other mid-day-meal, Antyodaya Anna Yojna etc. schemes. FCI (a government undertaking and created with a purpose to provide price support to the farmers) has its godowns, where excess prescribed buffer stocks is been stored. Thus a huge stored surplus poses inflation. As, later on the FCI procurement is more than prescribed requirement and PDS. Year FCI procurement FY04-08 26%-28% FY09 30% FY11 34% FY12 >34%

FCI protects farmers by procuring grains at MSP (during harvest of at bumper production time, prices are soft). With increased MSPs farmers get induced to sell their produce to Govt.

Growth Drivers
Population Growth : With increasing population and improved Standard of Living the demand for Agri-Products increases. The land under cultivation faces pressure due to rapid urbanisation, land erosion, etc, also, bio-fuel production, animal feeds, etc. has reduced foodgrain production that has enhanced the price of Agri-Products that lead to Agri Inflation. Livestock Feeding : The demand for Fruits, Oil, Dairy, Poultry etc. item strives to increase more than the demand for cereals. To feed the livestock, the demand for feed stock would increase. The deficient land availability would increase the competitiveness of feed crops with foodgrains. demand for cereals. To feed the livestock, the demand for feed stock would increase. The deficient land availability would increase the competitiveness of feed crops with foodgrains. Agri-Input to help growth : India allocates about ~48% of land to for agriculture production, but still is overall productivity is low, even it World Population yield (productivity / hectare land) lies World & Indian Population Over Decades below the world average production. Indian Population Farm inputs have aid to sustain 8 1.4 7.08 production increase. Even efforts are 7 1.21 1.2 6.08 being made to increase yield gaps through technology development, 6 5.27 1.02 1 dissemination and yield enhancing 5 4.45 0.84 0.8 agronomics practice adoption. With 3.7 4 3.39 0.68 favorable trends, rising farm income 0.6 2.55 0.54 and increasing awareness among 3 0.43 0.4 the farmers will likely drive volume 2 0.36 growth in these segments. The 0.2 1 agri-input spending are far below the 0 world average so there is potential 0 1950-51 1960-61 1970-71 1980-81 1990-91 2000-01 2010-11 growth in this space.

Agri-Inputs to increase production : Inefficient procurement and dissemination of foodgrains causes huge wastage about ~40% that causes inflation, while policy initiative like FDI in retail that address these challenges are progressive in long run but to have near term gain agri-inputs increases productivity.

Agriculture Contribution To Exports

350.00 300.00 250.00 200.00 150.00 103.10 100.00 126.28 9.91 10.04 162.99 11.31 9.6

Total Indian Exports ($ bn) Agri (%)

14 304.52 12.29 12 10 8 6

250.86 9.95 9.65

182.64 178.23

4 Established successful partnership (like McCain foods (procurers for 50.00 2 McDonalds), the farmers and 0.00 0 McDonalds and tomato growers in 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Punjab with Pepsi foods has led to huge economic gains for the farmer/ grower community. Agri input industry could emerge as large aggregators of farm produce for modern retail point in case Tata Chemicals Rallis JV that is procuring pulses to take forward to the market.

Exporters to benefit from crop price : Indication by global agencies states that though population don't increase with higher pace, but with increase in per capita income would lead to shift in dietary habits of more protein content food-items, these enhances the prices for the same, that push farm income and thus farm inputs

Agri-Input Premise
India is the 5th largest seed market of about ~2bn US$ Seed is a vital and basic input for increasing agricultural production and productivity in different agro-climatic regions, as efficacy of other agri-inputs like fertilisers, irrigation & pesticides is largely determined by the quality of the seeds. Coupled with biotech, quality hybrid seeds offers opportunity improves the current low yield in Indian agriculture segment.
300 250 200 150 4.8 100 50 0 3.8 57.5 69.9 5.9 86.3 7.4 126.8 Seed Dist. (Qtls) Seed Production (Qtls) 257.1 10.5

The Indian seed industry grows with 12% of CAGR for the 1991-92 1995-96 2000-01 2005-06 2009-10 last 5 years. It has made considerable progress in the development of high performance hybrid varieties of many crops, such as cotton, corn (maize), pearl millet (bajra), sunflower and vegetables. In value terms, the growth has come from increased adoption of hybrid and genetically modified (GM) seeds, its penetration has increased from 25% to 30% of the total seed produced. However 70% is still under farm-saved seeds. Major Crops BT Cotton : BT Cotton production has almost tripled the production in last decade to about ~33.43 mmt. Its production has increased from 50000 hectors in 2002 to 10.6 mn hectors in 2011. Thus BT Cotton has transformed the cotton production by increasing output, reducing the insecticides usage (~50%), alleviating poverty of small resource-poor farmers. Corn : The demand for Corn is growing continuously due to increase population growth and poultry product demand. The production of corn has been doubled in last decade though area under corn increased just ~2.5%, due to the usage of high yielding hybrid seeds. Rice : India is the second largest producer of Rice, and its production accounts for half of the global average production. Indias per hectare production has increased by 18% in last decade. Rice is a water

intensive crop and only 55% of cultivated rice area covers irrigation facility so the rice output is tad affected. Vegetables : Vegetable seeds accounts for 12% of the seeds industry in value terms. The segment is highly dominated by saved seeds. There is potential for it to increase due to increased acceptance in our economy.

Chemical Fertilisers have played an important role in making economy self-reliant in agri production. And, the role of Govt. has been significant as it has been consistently pursuing policies to increase availability and consumption of fertilisers at affordable price. This has enhanced fertiliser consumption in nutrient terms (N, P, & K) has increased from 0.07mmt in 1950-52 to ~28mmt in 2011. Capacity Stagnation & Consumption Increases : With consumption of fertilisers increase its indigenous production did not match likewise to meet the growing requirement mainly due to raw-materials/ inputs limitation. But the consumption has improved by 6.8% during FY07-12 that enhanced the dependency on fertilisers import (Indias imports accounts for about ~15-45% of the global traded products). Subsidies Bill : India is being more dependent on imports and gap between production and consumption of urea is increasing. Even the growing international price of finished fertilisers and input cost as well, increases subsidy bill.

Subsidy Trend ( in billions) Fertilizers Indigenous P&K Imported Urea Imported P&K Indigenous Urea FY10 160 70 235 176 FY11 207 93 209 151 FY12 198 175 166 203

Government Fertiliser Policy : The out-dated govt policy failed to attract investments in the sectors, that lead to increase imports and subsidies. To mitigate it and enhance capacity, govt established various polices like NBS (Nutrient Based Subsidy) for P & K fertilisers and incentivized efficient urea producers for increasing urea capacities. Greenfield / Brownfield Urea investment policy did attract tad of investments with higher capital cost lack of long-term gas allocation at particular price. New Investment Policy of Urea (Linking Gas Prices to Urea Floor Realisation) : The following is the Key-Takeaways of the Policy; EGoM approves new Urea Policy to enhance Urea Production and makes economy self-reliant in meeting demand for fertiliser N. The Policy also provide better incentive to the Urea Producer to enhance their production capacities. For Greenfield investments, the govt has fixed minimum floor-ceiling price band for Urea @ $ 310-40/mt at a landed gas price of $ 6.5/mmBtu. For gas prices > %6.5/mmBtu, and going up to maximum of $14/mmBtu, the ceiling will keep going up at the rate of $20/mt for every $1 increase in the price of gas. The govt offer subsidy only when the production cost remains within prescribed band. But the band has been reduced to save subsidy bill by increasing the floor and reducing the ceiling.

Pesticides are one of the tools that help enhance output and reduce wastage. The usage of pesticides is about 40% of the total arable area in India, the consumption is lowest when compared to world. The companies are making efforts to increase awareness among the farmers that would enhance the pesticides usage. The current loss due to wastages in country is ~ 900bn because of non application of agrochemicals. Govt. is increasing MSP (that increase farmers income), increase farm credits that impetus the demand for the pesticides and fungicides usage.

Domestic Crop Protection Industry Overview : Indias crop protection industry is largely dependent on monsoon, as only ~50 of arable area is covered with irrigation facility. ~47% out of total domestic pesticides market is exported, due to cheap labour, technical skilled manpower, manufacturing cost that makes it lucrative Insecticides consumption is more than herbicides & fungicides in country. Though it has been reduced due to the increased sales of genetically modified seeds like BT technology in cotton, in which seed by itself is pest resistant. Also, the consumption of herbicides & fungicides is strive to increase due to increasing labour cost and crunch in labour availability (though its mere 20% each). Indias per capita availability of agricultural land decreased that further reduces yield, therefore the usage of agrochemicals, fertilisers, etc. becomes inevitable. AP, Maharashtra & Punjab are the major consumer of pesticides, where Cotton & Rice finds greater application of pesticides as these crops enchants pest a lot in compare to other crops. The entry barriers are not very high as capital to set up Greenfield is low cost, low capital intensive and highly fragmented. Pesticide sale is more discretionary in nature compared with fertilizers / seeds which is stable as its perceived to be a necessity. Tata Chemicals FY12 Return on Asset (RoA) (%) Return on Equity (RoE) (%) Return on Capital Employed (%) Cost of Capital (%) 7.4 12.4 8.7 9.2 FY11 7.6 13.2 9.4 9.2 United Phosp. FY12 10.4 16.9 14.2 3.0 FY11 9.6 16.3 12.9 4.4 Kaveri Seed Co. FY12 13.1 25.0 23.3 1.3 FY11 12.5 27.0 26.6 1.0


Introduction : One of Indias foremost seed enterprise that has today evolved into a vertically integrated Agri-input company. A company committed to farmers prosperity through products and services in three niche areas viz. Yield Optimization, Soil Enrichment and Crop Protection. Incorporation : The company was incorporated in August, 1986 by Mr. Gundavaram Venkata Bhaskar Rao, with a business of seed production of public bred varieties of corn, bajra and sunflower in Andhra Pradesh. Product & Services : The company is engaged in the business of seed production, processing, packing and marketing.

Key Strengths
Diversified Portfolio : Kaveri has diversified portfolio with products like Bajra, Corn, Cotton, Jowar, Rice, Sunflower and Vegetables, this would mitigate its product related risk. With rise in cotton price its share has increased to 10% in H1FY13 that accounts for ~40% of revenues, with its strong brands Jadoo & Jackpot. Also it has ~15% market share in Sunflower, Corn & Bajra that would benefit in acreages and seed replacement rate in these crops. Also, Sampada (Red-Gram), Sampoorna (Paddy) have created niche market for itself. Kaveri is optimistic on Hybrid X 563 Bajra & KSH 950 Jowar. Production (mmt) Crop Sunflower Corn Bajra 2010-11 0.65 21.28 10.05 CAGR (%) (2001- 02 to 2010-11) -0.5 5.5 2.2 Output (kg/hec) 2010-11 726 2507 1091 CAGR (%) (2001- 02 to 2010-11) 2.6 2.5 2.3

New Product Launch : The company is developing new hybrids in different crops on regional demand that leads to gain market share. Its R&D is laying new thrust on vegetables with emphasis on tomato, okra and chilly, currently these seeds accounts of 7% of revenues. Research & Development : Kaveri has a sound R&D team that has helped develop hybrids that are superior to its peers and, thus, gain market share. The company plans to increase its R&D spending from 3% to 4% of its total revenue. In order to establish legal ownership of the companys hybrids and their parental lines, Kaveri has filed for about 150 applications, of which about 20 have been approved.

Growth Drivers :
Indian Seed Industry : Indian seed industry is growing at ~12% p.a. The private sector accounts for ~75% of the industry but is dominated by saved seeds (75%) and purchased seeds are just about 25%; thus emphasizing the huge opportunity for hybrid seeds industry.

Hybrid Penetration : The company can benefit from improving seed replacement rate and growth in hybridization. It has a strong product portfolio like 12 hybrid corn varieties, 5 sunflower, 6 cotton and 23 varieties of paddy. It has spend ~ 1.5bn in expansion.

Risk Involve
Regulations : Companies business is dependent on various rules, regulations and policies. Any amendment in these areas would curb companys freedom. Climate Condition : Seed production is dependent on weather condition and uneven weather adversely affect the quality and quantity of production, that also lead to pest attacks. Competition : The seed business requires continuous development of improved seeds, and inability to develop these would result in loss of market share.

Financial Overview Q2FY13

Key Financial Takeaways : Sales rocketed to Rs. 41.65 crore Unfortunately, margins got throttled by as much as 847 basis points, a fall from 20.52% to 12.05%. But falling margins didn't hinder a dignified rise in O P to Rs. 5.02 cr (+41.41 %). After providing for interest, the company generated cash before depreciation Rs. 6.50 Crore.

Kaveri is a proxy play on the emerging high growth seed opportunity in India. The seed space is attractive considering the macro opportunity, high entry barriers, asset light model, superior return ratios and less regulatory intervention. A strong germplasm base; huge land bank, sound relationship with growers, brand image and balance sheet strength makes Kaveri a formidable player in the seed industry. While the growth hitherto has been led by higher market share in cotton; but over the longer term increased rice, maize & bajra hybrid penetration would drive its growth.


Introduction : Tata Chemicals Ltd is a global company with interests in businesses that focus on LIFE - living, industrial and farming essentials. The company is India's leading Crop Nutrients Player with their own manufacturing of urea and phosphatic fertilisers and a leading player in crop protection business through their subsidiary company, Rallis India Ltd. Also, the company is the pioneer and India's market leader in the branded, iodized salt segment. The company is world's most geographically diversified company, with an efficient supply chain that can service customers across the globe. Incorporation : Tata Chemicals Ltd was incorporated on January 23, 1939. They have manufacturing facilities in India, UK, USA, the Netherlands and Kenya with global capacity of around 5.5 MTPA. Product & Services : The company is the world's second-largest producer of soda ash. They are also a leading player in the consumer products and crop nutrition and agribusiness segments. They operate in three sectors, namely living essentials (household products), industry essentials and farm essentials (crop nutrition and protection).

Corporate Action : Key Strengths

Non cyclical businesses share : The company would add capacity on a favourable new investment policy for urea. It has picked up 25.1% stake in a urea Green field project (1.3mmt capacity) in Gabon, Africa for US$290 mn. Forey in branded pulses deal would lead to crop protection and further capacity expansion in GCIP (General Chem Industrial Products-US base soda ash producer).

Risk Involve
Subsidy cut in Fertiliser P & K, fall in international urea price, adverse policy action could affect the earning. Rallis India contributes to ~10% in companys revenue, with any fall in pesticides sales would impact the revenues and cash flows of the company significantly. Soda ash revenue accounts for ~40% of the total consolidated revenue, its expected soda ash prices to improve with economic recovery. While soda margins improves late due to enhanced input cost could impact the earnings. High margin GCIP volumes to be affected by globally weakening of soda ash demand. However salt expansion would provides further stability to earnings. Particulars Inorganic Chemicals Fertilizers Other Agri Inputs (Rallis) Others Total Less: Inter Segment Revenue Net Sales/Income from Operation Q2FY13 1910.22 1722.94 537.79 25.66 4196.61 31.1 4165.51 Q2FY12 (%) Q1FY13 Q1FY12 (%) FY12 1638.2 17 3775.32 3177.87 19 6621.67 1416.02 22 2420.72 2441.79 -1 5547.56 493.51 9 982.1 858.9 14 1513.42 20.16 27 49.15 35.09 40 75.89 3567.89 18 7227.29 6513.65 11 13758.54 28.05 40.89 50.14 103.43 3539.84 13 7186.4 6463.51 13 13655.11 FY11 (%) 5419.51 22 4294.34 29 1174.43 29 51.14 48 10939.42 26 44.8 10894.62 13


OPM of the company fell 320 bps to 15.8% as other expenses as a percentage of net sales net of stock adjusted rose 330 bps to 15.2%, freight and forwarding charges rose 70 bps to 9.7%, power and fuel expenses was flat at 9.2% and employees expenses rose 50 bps to 6.4%, compensated by 270 bps decrease in cost of raw material consumed to 25% Operating profit fell 2% to Rs 661.42 crore.

Key Financial Takeaways

Sales grew to Rs. 2421.76 crore The company also managed to hold on to the margins. Consequently O P smarted up to Rs. 332.25 crore (+25.42 %) After providing for interest, the company generated cash before depreciation Rs. 326.32 Crore

Segmental performance
Living Essentials Market share of 67% in the national branded salt segment Salt franchise achieved highest ever sales in the H1 Launched LaVita New variant under water purifier business Industry Essentials Global Demand for Soda Ash & Bicarb was stable during Q2 TCL India Soda Ash production on expected lines TCE Production down due to equipment failure. TCM While dredge outages have resulted in overall lower production, PAM production for the quarter better then expectation TCNA Capacity remains sold out for the year. Export growth encouraging Farm Essentials Urea production on expected lines Neem coated urea showed healthy demand accounted of 50% of product mix SSP production higher than expectation DAP and NPK production for H1 impacted due to raw material unavailability during Q1 and poor demand.

Tata Chemicals is the second largest soda ash player worldwide after FMC, US. TCL has exposure to 35% of global low cost soda ash through natural soda ash reserves in the world (Wyoming, USA, and Magadi, Kenya). Access to low cost natural soda ash acts as a natural hedge against the commodity cycle. Through its global acquisitions, it has access to new markets (Latin America and certain markets in the Far east) too. On the other hand, apart from fertilisers (mainly urea) which earn a fixed ROE of 12%, the high margin salt business provides stable cash flows. With the IPP linked pricing for urea business and recently expanded GCIP soda ash & domestic salt capacity to augur well. Rallis India (subs of TATA chem.) further consolidates and complements TCLs presence in the crop nutrition business though synergy benefits.


Introduction : United Phosphorus Ltd is a global generic crop protection, chemicals and seeds company. They have 23 manufacturing sites, which includes nine in India, four in France and two in Spain. They operate in every continent and have a customer base in 123 countries. Incorporation : United Phosphorus Ltd was incorporated on January 2, 1985 with the name Vishwanath Commercials Ltd. Later on, in 1995, the name of the company was changed to Search Chem Industries Ltd and than to United Phosphorous. Product & Services : The company is engaged in the business of agrochemicals, industrial chemicals and chemical intermediates. They operate in three segments: Agro chemical : The agro chemicals segment consists of agrochemicals technicals and formulations. Industrial chemicals : The industrial chemicals segment consists of industrial chemicals and speciality chemicals. Others : The others segment consists of traded products. Range of Products The company offers a range of products that includes insecticides, fungicides, herbicides, fumigants, plant growth and regulators and rodenticides.

Corporate Action :
UPL has made two acquisitions in Brazil (Sipcam and DVA) in FY12, which strengthen its presence in Latin America (particularly Brazil, the fastest growing agrochemical market in the world and accounting for 15% of the global agricultural output). Also, the Brazilian acquisitions will be margin accretive, but working capital intensive.

Key Strength
Competitive Edge : It is one of the worlds lowest cost agrochemicals manufacturer as it supplies almost 52% of its produce from India. Captive power plants and raw material building blocks, results in lower cost of operation. Product Range : The wider the product basket, the stronger the relationship between a company and a distributor and farmer. Higher multiple products also lower distribution costs. Distribution : Distributors can influence farmers purchase decision, besides, distributors are selective and they only work with credible companies with a large, evolving product basket. Acquisitions too have helped build the missing distribution linkages. Registration : It has over 1000 registrations in over 120 countries. These registrations are obtained through extensive research & company acquisitions. The acquisitions have reduced the gestation period usually associated with getting products registered in various countries. It possesses the capability to file for more than 300 registrations annually.

Growth Drivers
PAT Growth : PAT Growth during FY10-12 has decline due to interest expense and losses of the acquired companies. However, a deleveraged balance sheet, volume growth in emerging markets and acquisitions turning to profit that would enhance the profit growth in coming time.


Gross Domestic revenue declined by 14% to Rs 491 crore contributing 26%, while international revenue was up by 13% to Rs 1391 crore contributing 74% of total gross revenue. The OPM was down by 52 bps to 17.6% due to rise in other expenditure and employee cost. The consolidated net profit inclined by 110% to Rs 119.8 crore due to fall in interest cost. The consolidated net sales grew by 5% to Rs 1856.02 crore. The standalone net sales increased 7% to Rs 959.97 crore. Sales growth excluding other operation income was led by 2% volume de-growth while price increased by 5%. The exchange impact was 2%.

Key Financial Highlights

Sales grew to Rs. 945.07 crore Nevertheless, margins came under pressure. There was a fall of 208 bps from 18.45% to 16.37%. Pressure on margins was strong enough to send O P on a downward path. O P fell to Rs. 154.75 cr (-3.01 %) After providing for interest, the company generated cash before depreciation Rs. 218.41 Crore

Segment Quarterly Analysis

Agro Division: The segment revenue decreased by 1% to Rs 749.55 crore. The PBIT margin has decreased by 1064 basis points to 14.35%. As a result, the PBIT declined by 43% at Rs 107.56 crore. This segment contributes 75% of the total income and 100% of the total PBIT. Industrial Chemical : The segment revenue decreased by 20% to Rs 136.77 crore. The PBIT margins decreased by 1229 basis points to 6.5%. The PBIT decreased by 73% to Rs 8.61 crore. This segment contributes 14% of the total income and 8% of the total PBIT

Delayed Receivables : With higher receivables days (norm in Brazil), pressure on working capital requirement increases that leads to interest outgo. CCI imposed Penalty : CCI has imposed 9% of revenue earned during 2008-12 in penalty for collusive bidding and rigging bid prices in supplying aluminium phosphide (ALP) tablets to state run Food Corporation of India (FCI).

Adverse climatic conditions and rise in input costs has reduced farm profitability and thus pest demand. Regulatory risks of CCI imposing a fine, a slower turn around of subsidiaries into profits and lower offtake of agrochemicals in India led by stressed farm profits have lowered investor interest. Its expected that a turn around of its subsidiaries (successful integration of acquisition in Brazil; reduction in working capital cycle to throw cash) would drive growth.

Financials (FY11 & FY12)

Cash-Flow Statement
Tata Chemicals FY12 Cash and Cash Equivalents at Beginning Net Cash from Operations Net Cash Used in Investment Net Cash Used in Financial Activity Net Inc/(Dec) in Cash and Cash 1345.04 1322.81 -794.55 -195.27 332.99 FY11 1158.9 969.25 -1144.13 361.02 186.14 1345.04 United Phosp. FY12 1518.49 1322.81 -679.56 306.15 -695.8 822.69 FY11 1615.44 814.82 -895.07 -16.7 -96.95 1518.49 Kaveri Seed Co. FY12 4.54 109.94 -89.19 -15.68 5.07 9.61 FY11 19.95 57.16 -46.64 -25.93 -15.41 4.54

Cash and Cash Equivalents in End of the 1678.03

Tata Chemicals FY12 Receivable days Inventory days Payable days Current ratio (x) Quick ratio (x) 45.1 37.8 46.9 2.0 1.5 FY11 61.8 49.8 46.6 1.6 1.1 United Phosp. FY12 95.6 90.8 215.1 1.8 1.3 FY11 121.4 91.0 120.9 2.8 1.9 Kaveri Seed Co. FY12 56.5 257.6 3105 1.3 0.4 FY11 27.9 297.3 386.9 1.1 0.2

Ratio Analysis
RoCE/Cost of Capital
30 25.6 25 20 15 10 5 -0.5 0 -5 Kaveri Seed TATA Chemical United Phosphorous 0.3 11.2 8.4 22 FY11 FY12

Sales / Total Assets

0.82 0.8 0.78 0.76 0.74 0.72 0.7 0.68 0.66 0.64 Kaveri Seed TATA Chemical 0.7 0.7 0.8 0.8 0.8 0.8

FY11 FY12

United Phosphorous

Working Capital / Sales

0.45 0.4 0.4 0.35 0.3 0.25 0.2 0.2 0.15 0.1 0.1 0.05 0 Kaveri Seed TATA Chemical 0.1 0.1 0.1

FY11 FY12

40 35 30 25 20 15 10 5 6.7 0 5.9 5.8 7.3 24.4 37.5

FY11 FY12

United Phosphorous

Kaveri Seed

TATA Chemical

United Phosphorous

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